Student case study (1/3): Surgeon revives a dying trading strategy

Sep 28, 2018

Alan saves lives. He’s a doctor. A surgeon.

And now he’s decided to see if he can save dying trading strategies too.

Friends call him ‘Al’.

Al is one of our most passionate Breakout Strategies Masterclass students. He’s moving ahead with his trading at the speed of light. And he’s come up with an amazing way to improve the results of trading strategies…

Radically…

Which we’ll share with you in a minute…

But first, a bit more about Al.

Al lives in Michigan and he’s a very smart, results-driven guy.

But he works too much as a surgeon and wants to have more free time for his family.

That’s why he decided to pursue a new career as a fully automated trader.

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But because Al is a smart guy, he first wanted to see if the Smashing False Breakouts (SFB) techniques actually work.

So, he decided to start with a most extreme test:

To take a completely failed strategy and see if it can be salvaged with the SFB techniques.

In his first test, Alan decided to use a very poor Lean Hogs breakout trading strategy. After applying $25 slippage and commission per contract the results looked like this. (Results are with 2 contracts position size):

Of course, this is an untradable trading strategy.

The equity curve is truly terrible – nobody would trade a strategy like this.

In case you’re interested, here are the statistics from the backtest report:

As the next step, Al took all the techniques from the ‘Smashing False Breakouts’ program. (The ‘Smashing False Breakouts’ program shares proven, highly effective and innovative techniques to deal with false breakouts fast.)

Al took all 14 techniques from the program. Some of the techniques have multiple variants to test and some can also be tested on a different (higher) timeframe. Al decided to test all of the possible variants, which resulted in a little bit over 100 techniques. The beauty of that is with all the codes included in the SFB program, it didn’t actually take him too long.

First, Al tested all the variants for Long positions. In general, the trading strategy loses money on the Long side, as you can see in the backtest report above. So, it’s no surprise that just a few of the techniques could turn the losing Long side into a profitable one. Still, there were quite a few (each vertical bar represents one tested SFB variant):

Plus, he added the ‘dynamic position sizing’ method we share in the ‘Smashing False Breakouts’ program, and these are the results after applying the SFB techniques:

So what can we learn from this?

It’s all about the results.

Risking less, but making more.

Delivering a smoother equity curve, but not overworking to accomplish it.

And it’s also about having the right tools.

Tools that will get you there faster than ever.

Tools that are easy to apply.

And tools that have been proven to actually work.

In Al’s words, here is the lesson he learned from his test:

“The Smashing False Breakout Method really works! Separating the system into Long and Short trades to identify the worst case (eliminate it) and best case (trade more contracts) enhances performance without necessarily curve-fitting the system. [It also means that Monte Carlo plots of Long-Only and Short-Only trades could potentially identify much earlier when a system is breaking down]. The daily market regime (Bull/Bear, Volatile/Quiet) [Data2] has a potentially HUGE impact on intra-day trading system results.“

Now, you may be thinking…

Is this just curve-fit garbage?

To answer your question, let’s continue with a comment from Al:

“After selecting these various filters, have we curve fit the system or is it still robust? To address this answer, I withheld the year 2018 from the original data set and tested the final system on this unseen data. You can see that the system continues to show an equity curve that maintains the same slope and is making consistently profitable trades into September 2018. The average trade has increased to $141 and the equity curve no longer has a deep dip.

Reduce False Breakouts

"Just finished the course yesterday, and I really do like all the Dynamic Position Sizing concepts! The simplicity and novelty of the concepts surprise time again and again. And yet they are very powerful. Another valuable tool in your trading toolbox."

PatrickDynamic Position Sizing Student

"Thanks everyone for all the tips, and big thanks to Tomas & Andrew for getting this info out. I cannot imagine how much time (and money) these courses have saved me. Up until this point I had assumed a 10-year optimization (with 20% OOS) followed by a SWFA was adequate robustness testing to start trading a strategy live."

NathanBreakout Strategies Masterclass Student

"I think the Dynamic Position Sizing course is great. It is well laid out and very clear. Thanks for another great course."

JimDynamic Position Sizing Student

This year I'm much better than I was one year ago before I bought your Trading Market Internals course. This was for me very, very important to improve myself. I'm more confident in trading, especially in trading stock indexes, because of Better Trading Academy.

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DISCLAIMER: Trading involves significant risk of loss and is not suitable for everyone. People can and do lose money. Hypothetical results have many inherent limitations. Past performance is not necessarily indicative of future results.